Financial Adviser Learns To Turn Money Into Security

People

November 10, 1985|By Dorothy-Anne Flor, Staff Writer

People`s interest in their money is second only to their concern about their health. ``It`s no secret that some people will go so far as to stay in a bad marriage for financial security,`` says Fort Lauderdale`s Rosalie Crawford. However, Crawford is not one of those people.

Eight years ago she left her marriage with good health, good looks, years of experience as a corporate executive and $70,000. Ignorant of more than the bare essentials of money management, she sought advice from a stockbroker on how to invest her stake. Bad advice quickly cost her $7,000.

After her initial rage, she realized that responsibility for this loss lay partly with her. ``Like most people, I had a black hole where there should have been financial acumen,`` she says. ``I didn`t understand what the stockbroker was saying, I didn`t know the terminology. I had no basis on which to question what he was recommending.``

Her anger led her to seek information about money management. As a result she put careers in advertising sales, promotion and marketing analysis permanently behind her to study for a career as a stockbroker. Today she is a vice- president-investments for Prudential-Bache Securities, Fort Lauderdale and a Certified Financial Planner.

When she first began, her goal was to use the remainder of her $70,000 to re- create her lifestyle without a husband and as a basis for making her first $2 million by age 50. She anticipates that, after taxes this $2 million will give her about $130,000 a year.

``I earn a good living now and am well on my way to reaching my goal,`` she says.

Her experience has taught her that there are three types of people who particularly need financial planning -- yuppies (young, urban, professional people), widows (especially older women) and divorced people of any age.

Crawford, herself, leads the yuppie life but ``without the yuppie materialistic euphoria,`` she says. ``Yuppies are living high during their earning years without enough concern about tomorrow. They are smart shoppers and buy only the very best. Their biggest threat is the amount of debt they take on without realizing what a demon debt is. Deducting that interest from your income tax isn`t enough of a benefit considering what the value of your purchase will be when you have finished paying for it. And, what you could have done with the money you`d have saved if you`d paid cash.

Divorcees and widows have a different set of problems. In both cases, there is usually a period of bad spending.

Newly divorced people seem to share three immediate reactions to their broken marriages. They want a new car, bigger and better than they have ever had before; they launch some home improvement project and frequently they`ll take an expensive trip.

Widows, particularly those who have never worked outside their homes, are inclined to sell their house too quickly; to take a cruise and to start dissipating capital.

``These moves seem to help people get over the trouble they have gone through. But, if someone doesn`t sit them down and pull in the reins, this behavior simply means more trouble ahead,`` she says.

Recently she worked with a divorcee with four children whose assets were money from the sale of the family home; a cash settlement of $40,000; $24,000 annual alimony, which ends in seven years, and a once-a-year payment of $7,000, which also ends in seven years.

With the money from the house sale, this woman immediately bought another house, paying cash. Her accountant was critical. He said that a mortgage would have allowed her to deduct taxes and interest from her income tax.``

This is faulty thinking, says Crawford.

The first goal of both widows and divorcees should be to own their home free and clear plus putting aside enough to pay the annual taxes. ``If things fall apart, you can always eat at home, turn off the air conditioning. If they repossess your car, no big deal. You can make some other arrangements. But, whatever happens, you don`t want to worry about having a roof over your head.``

Now that her client has a home that is paid for, plus the $2,000 monthly alimony she needs to live on even without a mortgage payment, Crawford recommended planning ahead so when the alimony payments end, that $2,000 a month will still continue. To do this, she must acquire $240,000 in the next seven years -- the amount needed to produce $24,000 annually, figured at 10 percent return.

``While she has no skills and will probably never earn a large salary, I told my client she had to work,`` says Crawford. ``Then, if she put her $40,000 cash settlement, a $1,000 monthly salary check and the annual $7,000 payment into fixed-income investments and left it alone, re-investing all dividends, we could make this $240,000 in seven years. In addition, she would still have the equity in her home.

``With this kind of client, you stay out of risk-oriented investments,`` she says.

How can people learn the basics of money management and investing?

Self-help books and seminars are a source for acquiring the necessary vocabulary, but they are not going to teach the specifics that apply to you.

``Begin with putting your financial picture on paper,`` she says. List your assets and liabilities, your monthly income and expenses. Then, decide what annual income you need to live comfortably when you retire. Add a zero to this figure. This is the amount you will need to produce this income. Then, figure out how much you will have to put aside each month to meet your goal and how much time you have to work with.

``The next step is to look for a broker the same way you would look for a doctor. Through referral by friends. Or, telephone the branch manager of a long established firm, briefly explain your financial situation and he will match you up with a person on his staff who would meet your particular needs,`` she says.